As a result of the numerous corporate and accounting scandals, the financial crisis, and other similar events that have occurred in the first part of the 21st century, numerous regulatory and protection acts have been enacted to provide assurance to individuals, investors, and the boards and management of organizations regarding the financial and operational integrity of these companies.
Given the heightened awareness and requirements of the regulatory environment, many people hear the term ‘audit’ and immediately relate it to the ‘external audit’ teams of Certified Public Accountants tasked to review the accounting of organizations to assure the accuracy of the financial information.
An ‘internal audit’ can be critical to the successful operation and growth of any organization before the external audit team even begins to add their value. According to The Institute of Internal Auditors “internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.” … Continue reading
The on-going regulatory response to the 2008 financial crisis includes the Office of the Comptroller of the Currency (OCC) Risk Management Guidance on third-party relationships, issued in October 2013. The bulletin states that the OCC expects a bank to practice effective risk management regardless of whether the bank performs the activity internally or through a third party.
“A bank’s use of third parties does not diminish the responsibility of its board of directors and senior management to ensure that the activity is performed in a safe and sound manner and in compliance with applicable laws.”
In a recent speech before the Risk Management Association, Thomas J. Curry, Comptroller of the Currency, emphasized the importance of managing the risks “associated with bank systems and processes” even above credit risk. He noted banks’ “increasing reliance on third parties” and the systemic risks they impose. … Continue reading
The Office of the Comptroller of the Currency (OCC) is focused on the responsibility of financial institutions—national banks and Federal savings associations—to be responsible for the risk management of business operations whether they are performed internally or through third party vendors.
CIT companies are clearly included in this mandate.
The OCC recognizes that the growing interconnectedness of banks with third party cash management service providers has created new sources of risk due to gaps or inconsistencies of controls that can occur where distinct businesses interface. In everyday terms, this means there can be situations where “no one is in charge.”
Since the OCC is responsible for the security of the overall financial system, it is moving to make banks accountable for the gaps and inconsistencies between them and third party vendors that may pose risk to the system.
This creates specific kinds of difficulties for banks because they can be held accountable for the actions of organizations they do not own. Banks and their third party vendors, including CIT businesses, have different regulatory, standard practice, and incentive profiles, as well as different cultures and assumptions. It will take especially thorough due diligence to write contracts that lay out the important responsibilities and performance expectations for the different parties to get all the entities on the same page.
In these circumstances, monitoring performance takes on greater importance. There is a substantial possibility that unanticipated gaps or inconsistencies will emerge despite careful risk management planning. Banks have a strong incentive to measure performance and find irregularities as quickly as possible. … Continue reading